LivingSocial is making millions of dollars, and local businesses are getting in on the action. But is “social commerce” always a good fit for small businesses? Nate’s Taco Truck Stop recently partnered with the rising social commerce company. Their first date didn’t go so well.
When I ask him if he would ever partner with LivingSocial again, Nathaniel Gutierrez, owner of Nate’s Taco Truck, is blunt: “Probably not.”
On June 10, 2011, LivingSocial members received an appetizing offer: spend $10 for a $20 coupon good at Nate’s Taco Truck Stop, a downtown restaurant at 315 N. 2nd Street that he opened in December of 2010. So, how did Nate go about initiating the partnership with this potential billion-dollar company? How did he, as revered as he is in Richmond, get them to even pay attention to him?
He didn’t. “They called me,” he said.
When Nate expressed interest over the phone LivingSocial sent a representative to speak with him, customizing the deal to fit both Nate’s capabilities and interest. It was the “first time I’ve paid for any kind of advertising,” he said, done largely out of “curiosity” towards the process of the LivingSocial’s Daily Deal.*
Based in Washington, D.C., the company, which competes with Groupon, received funding from Amazon in the amount of $175 million back in late 2010. Speaking after that announcement, Tim O’Shaughnessy, LivingSocial’s CEO, indicated that their goal is to be “the biggest player in the local commerce space.” It’s estimated that LivingSocial will make $1 billion in 2011.
To make money, LivingSocial, as well as Groupon, takes a cut of the already undercut revenue. In Nate’s case, LivingSocial received $5 for every $10 coupon purchased. For every customer who came into Nate’s Taco Truck Stop, Nate received only $5 for every $20 worth of dispensed food, a loss of $15 per order. LivingSocial sold 441 coupons (an $8,820 value), earning the company and Nate $2,205 each. Customers have only redeemed about 100 of the existing coupons, although the terms of the deal allow remaining customers until December 14 to do so.
The attraction for Nate in partnering with LivingSocial was that it could bring new customers to his downtown location. But did it?
“It brought people in, which is exciting.” That excitement, however, did not surpass the unfortunate issues with the Nate/LivingSocial partnership.
Initially, Nate was alarmed by the number of coupons sold. Not only did he worry about having enough food to accommodate what he assumed to be soon-attending patrons, but his small business, a rather diminutive one compared to other small businesses, does not have the capital to adequately cover a significant loss of revenue. Nate may ultimately spend $6,615 on the advertising campaign, a campaign that has not gone off without a hitch.
An oversight in the coupon’s fine print allowed the coupon to be purchased beyond the single day to which Nate agreed. After noticing the error, he contacted LivingSocial, who informed Nate that it was a problem that they were unwilling to fix. Additionally, the fine print also allows for the coupon to be redeemed more than once, a condition that Nate never agreed to. Then there’s the matter of location.
The principal reason that Nate partnered with LivingSocial was “to get people into the new shop.” Customers did not have to purchase food in the shop. Instead, they could obtain a voucher that they could then use at the food cart. The food cart, as many Richmonders will attest, is busy enough at either its VCU and weekly Forrest Hill Farmers’ Market locations; adding the additional LivingSocial paperwork would have been far too nettlesome for his already occupied and cramped employees. This aggravated some customers who did not want to travel to the downtown location. “So, I made a couple people angry,” said a nonplussed Nate.
When I ask him whether he would recommend a social couponing venture to other restaurants, he says it would be “better for a restaurant with booths” and tables where patrons could order additional food and drink to help offset the total sustained losses. Nate didn’t have that luxury. The ordeal, however, was not all for naught.
“Every day it’s gotten busier,” said Nate of his restaurant. While drafting this article on Friday afternoon, shortly after Nate’s Taco Truck Stop opened, one person tweeted that there was a “line out the door.” When asked if his small business was in any financial straits to honor the remaining unclaimed coupons, Nate said, “I’m sure I can fulfill my part of the deal,” adding “I know I’ll be able to do it.”
* Interestingly, his wife, who runs an acupuncturist business, was previously unable to solicit a Daily Deal promotion with LivingSocial, as they do not yet offer such deals to acupuncture businesses.